Friday, May 22, 2009

Michael Steinhardt, whose hedge funds returned more than 20 percent a year for almost three decades, said the steepest U.S. stock market rally since the 1930s is ending.

“The economy is still a scary place,” Steinhardt, 68, said in a Bloomberg Television interview. “My net feeling is that this rally doesn’t have all that much more to go and the dangers out there remain consequential.”

The Standard & Poor’s 500 Index has surged as much as 37 percent since March on signs the first global recession since World War II is abating. The Conference Board’s measure of leading economic indicators, including stock prices and manufacturing, increased in April for the first time since June. Still, the Federal Reserve projected on May 20 that unemployment will be at least 9 percent through next year and gross domestic product has shrunk for three straight quarters.

“Can the stock market do well in a muddling period in the economy, where at best it grows at a percent or two for a period of time? Maybe,” Steinhardt said at his estate in Bedford, New York, where he keeps lemurs and zonkeys, a cross between a zebra and donkey, in a private zoo. “But it’s not a period where you see an effusive stock market.”

In 1967, he opened New York-based Steinhardt Management Co., a hedge fund that produced returns averaging 24 percent a year for the next 28 years. He is the chairman of WisdomTree Investments Inc., a New York-based asset-management firm that creates exchange-traded funds.

Steinhardt now spends most of his time on philanthropy, including the Steinhardt School of Culture, Education and Human Development at New York University and the Steinhardt Social Research Institute at Brandeis University in Waltham, Massachusetts. He is a co-founder of Birthright Israel, which provides free trips to Israel for Jews between the ages of 18 and 26. He also has homes in New York City and Jerusalem.

U.S. government bonds are not safe investments at this time, Steinhardt said.

Treasuries posted their biggest annual gain since 1995 last year as the worst stock-market rout since the 1930s drove investors to securities they perceived as havens. Also, the Fed cut the target for its benchmark lending rate to as low as zero, a record.

The yield on 10-year notes fell to 2.0352 percent in December, the lowest on record for data going back to 1953. While the figure has climbed to 3.45 percent, it’s still about half the monthly average of 6.93 percent since 1962, according to data compiled by Bloomberg.

“To be a long-term investor in Treasuries at this point I think is foolish,” he said. “The rates are low, and the danger is high.”